The Thrift Savings Plan (TSP) Lifecycle (L) Fund option became available in 2005 and is now widely used by plan participants. The funds make portfolio weighting (or asset allocation) decisions based on a designated target retirement date. In fact, similar non-TSP accounts of this kind are often referred to as “target date funds.”
From a TSP plan participant’s standpoint, the Lifecycle (L) fund is “low-maintenance.” The fund automatically becomes more conservative, with less stock and more fixed-income securities in its portfolio as the target date approaches. This gradual shift in portfolio composition, often referred to as a “glide path,” reduces the risk of the Lifecycle (L) fund as TSP participants approach retirement.
Lifecycle (L) funds are available in 10-year increments. When TSP participants invest in the Lifecycle (L) fund, they are advised to select the Lifecycle (L) fund that best coincides with their planned retirement date. For example, the Lifecycle (L) 2020 fund would be appropriate for people retiring between 2015 and 2024, and the Lifecycle (L) 2030 fund for retirement dates between 2025 and 2034, etc.
More aggressive investors might want to select the next highest 10-year Lifecycle (L) fund (e.g., 2040 when they really qualify for 2030), and less aggressive investors may want to go down a notch (2020 when they really qualify for 2030). To help keep a plan participant’s asset allocation in check with their investment goals, many financial advisers recommend placing a plan participant’s entire TSP account balance into a designated Lifecycle (L) fund and not “commingling” it with one or more other TSP funds.